Lately, international investing, particularly emerging market investing, has been pretty poor. It's hard to believe that, only two years ago, investors poured more than $16 billion into various emerging market mutual funds and exchange products. But then, the global slowdown came and growth, as well as stocks, have plummeted.

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While the recent market rallies have brought some of these assets back, the
iShares MSCI Emerging Markets Index ETF (NYSE:EEM), the major proxy for these markets, is still well off of its highs. This has led to the questioning of the theory of decoupling. Emerging markets, at one time, offered low correlation to the developed world. However, as these nations grew in prosperity, their fortunes became inter-twined with global economy. For example, China is now the United States' second largest trading partner, contributing $387 billion worth of trade. China will continue to grow and prosper over the upcoming decades, and long-term investors should plan according in their portfolios. The real question is, where the next "Chinas" are, and is there a way to participate in their growth?

Finding the Next China
Wall Street calls these emerging markets that have not fully emerged, "frontier economies." They include such nations as Peru, Nigeria, Croatia and Kazakhstan. Typically, these frontier environments are characterized by very fast growing economies combined with very small or hardly-existent equity markets. For example, at the Ugandan Securities Exchange, the average daily volume in terms of dollars is only around $200,000. Add this to the often unstable political environments, and you have reason why these aren't tourist hot spots.

But there are many positives to these frontier markets - many are rich in natural resources. As the long term global demand for oil, natural gas, gold and other commodities continues to increase, the prospects for growth in these nations is promising. In addition, frontier markets provide the low correlations that places like China and India used to provide. Comparing the three major international indexes, The MSCI World Developed, MSCI Emerging and S&P Frontier, to the S&P 500, we see that correlations are as follows, 0.95, 0.69 and 0.20, respectfully. (For more, see Go International With Foreign Index Funds.)

How to Capitalize on that Growth
While there are a few frontier market ADR's trading on major U.S. exchanges, such as South Africa's Sasol Limited (NYSE:SSL), most do not. Creating an allocation to these assets using individual stocks would be most daunting. For most investors, an index exchange product or actively managed mutual fund is a better choice. These can provide exposure to several different frontier markets, across several different sectors.

The oldest exchange traded fund in this sector is the Claymore/BNY Mellon Frontier Markets (NYSE:FRN). It also follows the broadest index, covering nations in South America, Asia, Africa and Eastern Europe. Currently, the fund contains 34 holdings equally spread across sectors with financials making up 28%. Companies within the ETF range from the semi-familiar and U.S. listed Chemical & Mining Co. of Chile Inc. (NYSE:SQM), and gold miner, Compania de Minas Buenaventura SA (NYSE:BVN), to the exotic Orascom Construction Industries of Egypt. The only troubling issue with the Claymore fund is that nearly 35% of the assets are located in Chile, and about 20% are located in Poland. While both Chile and Poland are great candidates for the next "emerging market of tomorrow," it may be disadvantageous to have over 50% of assets in two countries. Time will tell. The ETF charges 0.65% in expenses. (For more, see Five Ways To Find A Winning ETF.)

The remaining ETF's in the sector focus on the continent of Africa. The PowerShares MENA Frontier Countries ETF (NASDAQ:PMNA) concentrates its holdings in the oil and energy rich Middle East, comprising of investment in Egypt, Morocco, Oman, Lebanon, Jordan, Kuwait, Bahrain, Qatar and United Arab Emirates. The appeal of the area is that energy-driven profits will spur growth in other areas, including infrastructure and healthcare. Analysts estimate that these nations will generate an oil surplus of $1.1 trillion - equal to about $30 million per resident. The fund currently holds 33 holdings with a surprising 50% weighting towards financials. (For more, see Finding Fortune In Foreign-Stock ETFs.)

The Bottom Line
For investors with a long term (possibly decades long) timeline, Frontier markets may make sense. These emerging nations of tomorrow offer significant growth potential for investors willing to take the risks. These could be the China's and Brazil's of the future. The two previous ETFs offer a broad way to wade into the sector and gain from that growth. (To learn more about ETFs, see our Exchange Traded Funds Tutorial.)

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